Experts suggest Bhutan needs financial deepening to achieve its 13th Plan goals, as it sustains economic growth, reduces borrowing costs, and unlocks private sector potential. Between 2016 and 2024, Nepal’s private sector net claims averaged 60% of GDP, with volatile post-pandemic credit growth and reliance on fixed asset-backed loans. Bhutan’s NPL ratio decline may not reflect sectoral health due to deferred repayments and lack of diversification, with public sector banks dominating the sector. To buck these trends, the ADB suggests a comprehensive program for banking sector reform. Strengthening the regulatory framework and putting in place a risk-based supervisory approach are two important suggestions that are essential to addressing current risks.
The ADB suggests strengthening risk weights for overexposed industries including housing and tourism, reversing prudential regulation relaxations from the epidemic era, and giving integrated supervision of financial conglomerates first priority. The ADB also recommends the establishment of diverse collateral registries, efficient credit information systems, improved inter-agency coordination for crisis management, a comprehensive assessment of climate-related risks, and an accessible insolvency framework for smaller enterprises in order to build a strong financial infrastructure. The ADB recommends risk-based pricing strategies, digital finance, and cybersecurity supervisory practices for financial institutions to promote equitable lending practices and innovation.